Intrinsic value of Home Depot - HD

Previous Close

$147.49

  Intrinsic Value

$107.85

stock screener

  Rating & Target

sell

-27%

  Value-price divergence*

-29%

Previous close

$147.49

 
Intrinsic value

$107.85

 
Up/down potential

-27%

 
Rating

sell

 
Value-price divergence*

-29%

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of HD stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2017), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 179.2

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2017(a)
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046
   2047

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  6.86
  6.90
  6.71
  6.54
  6.39
  6.25
  6.12
  6.01
  5.91
  5.82
  5.74
  5.66
  5.60
  5.54
  5.48
  5.43
  5.39
  5.35
  5.32
  5.29
  5.26
  5.23
  5.21
  5.19
  5.17
  5.15
  5.14
  5.12
  5.11
  5.10
  5.09
Revenue, $m
  94,595
  101,122
  107,907
  114,963
  122,304
  129,944
  137,899
  146,186
  154,824
  163,831
  173,229
  183,038
  193,281
  203,983
  215,167
  226,860
  239,091
  251,887
  265,280
  279,300
  293,982
  309,360
  325,471
  342,354
  360,048
  378,596
  398,043
  418,433
  439,817
  462,245
  485,771
Variable operating expenses, $m
 
  73,602
  78,527
  83,648
  88,976
  94,521
  100,295
  106,309
  112,579
  119,116
  125,937
  132,847
  140,281
  148,048
  156,165
  164,652
  173,529
  182,817
  192,537
  202,713
  213,369
  224,530
  236,223
  248,476
  261,318
  274,780
  288,894
  303,694
  319,214
  335,492
  352,567
Fixed operating expenses, $m
 
  12,931
  13,255
  13,586
  13,926
  14,274
  14,631
  14,996
  15,371
  15,756
  16,150
  16,553
  16,967
  17,391
  17,826
  18,272
  18,729
  19,197
  19,677
  20,169
  20,673
  21,190
  21,719
  22,262
  22,819
  23,389
  23,974
  24,573
  25,188
  25,817
  26,463
Total operating expenses, $m
  81,168
  86,533
  91,782
  97,234
  102,902
  108,795
  114,926
  121,305
  127,950
  134,872
  142,087
  149,400
  157,248
  165,439
  173,991
  182,924
  192,258
  202,014
  212,214
  222,882
  234,042
  245,720
  257,942
  270,738
  284,137
  298,169
  312,868
  328,267
  344,402
  361,309
  379,030
Operating income, $m
  13,427
  14,588
  16,126
  17,729
  19,402
  21,149
  22,974
  24,880
  26,874
  28,960
  31,143
  33,638
  36,033
  38,543
  41,175
  43,936
  46,833
  49,874
  53,066
  56,419
  59,941
  63,641
  67,529
  71,615
  75,911
  80,427
  85,174
  90,166
  95,416
  100,936
  106,742
EBITDA, $m
  15,400
  16,729
  18,396
  20,134
  21,947
  23,840
  25,817
  27,882
  30,040
  32,298
  34,660
  37,134
  39,724
  42,439
  45,285
  48,269
  51,399
  54,685
  58,133
  61,753
  65,555
  69,549
  73,745
  78,154
  82,787
  87,657
  92,776
  98,158
  103,815
  109,764
  116,019
Interest expense (income), $m
  924
  968
  1,076
  1,190
  1,308
  1,431
  1,559
  1,692
  1,831
  1,975
  2,126
  2,283
  2,448
  2,619
  2,798
  2,985
  3,181
  3,386
  3,600
  3,824
  4,059
  4,305
  4,562
  4,832
  5,114
  5,410
  5,721
  6,046
  6,388
  6,746
  7,121
Earnings before tax, $m
  12,491
  13,621
  15,049
  16,539
  18,094
  19,718
  21,415
  23,188
  25,043
  26,984
  29,017
  31,355
  33,586
  35,924
  38,377
  40,951
  43,652
  46,488
  49,466
  52,595
  55,882
  59,336
  62,967
  66,784
  70,797
  75,016
  79,453
  84,120
  89,028
  94,190
  99,621
Tax expense, $m
  4,534
  3,678
  4,063
  4,466
  4,885
  5,324
  5,782
  6,261
  6,762
  7,286
  7,835
  8,466
  9,068
  9,700
  10,362
  11,057
  11,786
  12,552
  13,356
  14,201
  15,088
  16,021
  17,001
  18,032
  19,115
  20,254
  21,452
  22,712
  24,038
  25,431
  26,898
Net income, $m
  7,957
  9,943
  10,986
  12,074
  13,209
  14,394
  15,633
  16,928
  18,282
  19,699
  21,182
  22,889
  24,517
  26,225
  28,015
  29,894
  31,866
  33,936
  36,110
  38,394
  40,794
  43,315
  45,966
  48,752
  51,681
  54,762
  58,001
  61,407
  64,990
  68,759
  72,723

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  2,538
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  42,966
  45,923
  49,004
  52,209
  55,542
  59,012
  62,624
  66,388
  70,311
  74,401
  78,669
  83,124
  87,775
  92,635
  97,714
  103,025
  108,579
  114,390
  120,472
  126,839
  133,507
  140,491
  147,807
  155,474
  163,510
  171,933
  180,764
  190,024
  199,735
  209,921
  220,605
Adjusted assets (=assets-cash), $m
  40,428
  45,923
  49,004
  52,209
  55,542
  59,012
  62,624
  66,388
  70,311
  74,401
  78,669
  83,124
  87,775
  92,635
  97,714
  103,025
  108,579
  114,390
  120,472
  126,839
  133,507
  140,491
  147,807
  155,474
  163,510
  171,933
  180,764
  190,024
  199,735
  209,921
  220,605
Revenue / Adjusted assets
  2.340
  2.202
  2.202
  2.202
  2.202
  2.202
  2.202
  2.202
  2.202
  2.202
  2.202
  2.202
  2.202
  2.202
  2.202
  2.202
  2.202
  2.202
  2.202
  2.202
  2.202
  2.202
  2.202
  2.202
  2.202
  2.202
  2.202
  2.202
  2.202
  2.202
  2.202
Average production assets, $m
  22,053
  23,561
  25,142
  26,786
  28,497
  30,277
  32,130
  34,061
  36,074
  38,173
  40,362
  42,648
  45,035
  47,528
  50,134
  52,858
  55,708
  58,690
  61,810
  65,077
  68,498
  72,081
  75,835
  79,768
  83,891
  88,213
  92,744
  97,495
  102,477
  107,703
  113,185
Working capital, $m
  3,591
  2,427
  2,590
  2,759
  2,935
  3,119
  3,310
  3,508
  3,716
  3,932
  4,157
  4,393
  4,639
  4,896
  5,164
  5,445
  5,738
  6,045
  6,367
  6,703
  7,056
  7,425
  7,811
  8,216
  8,641
  9,086
  9,553
  10,042
  10,556
  11,094
  11,659
Total debt, $m
  23,601
  26,253
  29,023
  31,904
  34,900
  38,020
  41,267
  44,651
  48,177
  51,855
  55,691
  59,696
  63,878
  68,247
  72,813
  77,587
  82,581
  87,805
  93,272
  98,997
  104,991
  111,269
  117,847
  124,739
  131,963
  139,536
  147,475
  155,800
  164,530
  173,687
  183,292
Total liabilities, $m
  38,633
  41,285
  44,055
  46,936
  49,932
  53,052
  56,299
  59,683
  63,209
  66,887
  70,723
  74,728
  78,910
  83,279
  87,845
  92,619
  97,613
  102,837
  108,304
  114,029
  120,023
  126,301
  132,879
  139,771
  146,995
  154,568
  162,507
  170,832
  179,562
  188,719
  198,324
Total equity, $m
  4,333
  4,638
  4,949
  5,273
  5,610
  5,960
  6,325
  6,705
  7,101
  7,515
  7,946
  8,395
  8,865
  9,356
  9,869
  10,405
  10,966
  11,553
  12,168
  12,811
  13,484
  14,190
  14,929
  15,703
  16,514
  17,365
  18,257
  19,192
  20,173
  21,202
  22,281
Total liabilities and equity, $m
  42,966
  45,923
  49,004
  52,209
  55,542
  59,012
  62,624
  66,388
  70,310
  74,402
  78,669
  83,123
  87,775
  92,635
  97,714
  103,024
  108,579
  114,390
  120,472
  126,840
  133,507
  140,491
  147,808
  155,474
  163,509
  171,933
  180,764
  190,024
  199,735
  209,921
  220,605
Debt-to-equity ratio
  5.447
  5.660
  5.860
  6.050
  6.220
  6.380
  6.520
  6.660
  6.780
  6.900
  7.010
  7.110
  7.210
  7.290
  7.380
  7.460
  7.530
  7.600
  7.670
  7.730
  7.790
  7.840
  7.890
  7.940
  7.990
  8.040
  8.080
  8.120
  8.160
  8.190
  8.230
Adjusted equity ratio
  0.062
  0.101
  0.101
  0.101
  0.101
  0.101
  0.101
  0.101
  0.101
  0.101
  0.101
  0.101
  0.101
  0.101
  0.101
  0.101
  0.101
  0.101
  0.101
  0.101
  0.101
  0.101
  0.101
  0.101
  0.101
  0.101
  0.101
  0.101
  0.101
  0.101
  0.101

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  7,957
  9,943
  10,986
  12,074
  13,209
  14,394
  15,633
  16,928
  18,282
  19,699
  21,182
  22,889
  24,517
  26,225
  28,015
  29,894
  31,866
  33,936
  36,110
  38,394
  40,794
  43,315
  45,966
  48,752
  51,681
  54,762
  58,001
  61,407
  64,990
  68,759
  72,723
Depreciation, amort., depletion, $m
  1,973
  2,141
  2,270
  2,405
  2,545
  2,691
  2,843
  3,001
  3,166
  3,338
  3,518
  3,496
  3,691
  3,896
  4,109
  4,333
  4,566
  4,811
  5,066
  5,334
  5,615
  5,908
  6,216
  6,538
  6,876
  7,231
  7,602
  7,991
  8,400
  8,828
  9,277
Funds from operations, $m
  9,486
  12,084
  13,256
  14,478
  15,754
  17,085
  18,476
  19,929
  21,448
  23,037
  24,700
  26,385
  28,209
  30,120
  32,125
  34,227
  36,432
  38,747
  41,177
  43,728
  46,408
  49,224
  52,182
  55,291
  58,558
  61,992
  65,603
  69,399
  73,390
  77,587
  82,000
Change in working capital, $m
  -297
  157
  163
  169
  176
  183
  191
  199
  207
  216
  226
  235
  246
  257
  268
  281
  294
  307
  321
  336
  352
  369
  387
  405
  425
  445
  467
  489
  513
  538
  565
Cash from operations, $m
  9,783
  11,927
  13,093
  14,309
  15,578
  16,902
  18,285
  19,730
  21,241
  22,821
  24,474
  26,149
  27,963
  29,864
  31,856
  33,946
  36,139
  38,440
  40,855
  43,392
  46,056
  48,855
  51,795
  54,885
  58,133
  61,547
  65,136
  68,909
  72,877
  77,049
  81,436
Maintenance CAPEX, $m
  0
  -1,808
  -1,931
  -2,061
  -2,196
  -2,336
  -2,482
  -2,634
  -2,792
  -2,957
  -3,129
  -3,308
  -3,496
  -3,691
  -3,896
  -4,109
  -4,333
  -4,566
  -4,811
  -5,066
  -5,334
  -5,615
  -5,908
  -6,216
  -6,538
  -6,876
  -7,231
  -7,602
  -7,991
  -8,400
  -8,828
New CAPEX, $m
  -1,621
  -1,509
  -1,581
  -1,644
  -1,710
  -1,780
  -1,854
  -1,931
  -2,013
  -2,099
  -2,190
  -2,286
  -2,387
  -2,493
  -2,606
  -2,725
  -2,850
  -2,982
  -3,120
  -3,267
  -3,421
  -3,583
  -3,754
  -3,934
  -4,123
  -4,322
  -4,531
  -4,751
  -4,982
  -5,226
  -5,482
Cash from investing activities, $m
  -1,583
  -3,317
  -3,512
  -3,705
  -3,906
  -4,116
  -4,336
  -4,565
  -4,805
  -5,056
  -5,319
  -5,594
  -5,883
  -6,184
  -6,502
  -6,834
  -7,183
  -7,548
  -7,931
  -8,333
  -8,755
  -9,198
  -9,662
  -10,150
  -10,661
  -11,198
  -11,762
  -12,353
  -12,973
  -13,626
  -14,310
Free cash flow, $m
  8,200
  8,610
  9,581
  10,604
  11,672
  12,786
  13,950
  15,165
  16,436
  17,765
  19,156
  20,555
  22,081
  23,679
  25,355
  27,112
  28,956
  30,892
  32,924
  35,059
  37,301
  39,657
  42,133
  44,736
  47,472
  50,349
  53,375
  56,556
  59,903
  63,423
  67,126
Issuance/(repayment) of debt, $m
  2,274
  2,652
  2,770
  2,881
  2,997
  3,119
  3,248
  3,383
  3,527
  3,677
  3,837
  4,005
  4,182
  4,369
  4,566
  4,774
  4,993
  5,224
  5,468
  5,724
  5,994
  6,278
  6,578
  6,893
  7,224
  7,573
  7,939
  8,325
  8,730
  9,157
  9,605
Issuance/(repurchase) of shares, $m
  -6,662
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  -4,466
  2,652
  2,770
  2,881
  2,997
  3,119
  3,248
  3,383
  3,527
  3,677
  3,837
  4,005
  4,182
  4,369
  4,566
  4,774
  4,993
  5,224
  5,468
  5,724
  5,994
  6,278
  6,578
  6,893
  7,224
  7,573
  7,939
  8,325
  8,730
  9,157
  9,605
Total cash flow (excl. dividends), $m
  3,726
  11,262
  12,351
  13,485
  14,669
  15,905
  17,197
  18,549
  19,962
  21,442
  22,992
  24,560
  26,263
  28,048
  29,921
  31,886
  33,950
  36,116
  38,392
  40,783
  43,295
  45,935
  48,711
  51,628
  54,696
  57,922
  61,314
  64,881
  68,633
  72,580
  76,731
Retained Cash Flow (-), $m
  1,983
  -305
  -311
  -324
  -337
  -350
  -365
  -380
  -396
  -413
  -431
  -450
  -470
  -491
  -513
  -536
  -561
  -587
  -614
  -643
  -673
  -705
  -739
  -774
  -812
  -851
  -892
  -935
  -981
  -1,029
  -1,079
Prev. year cash balance distribution, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  10,957
  12,040
  13,161
  14,332
  15,555
  16,832
  18,169
  19,566
  21,029
  22,561
  24,110
  25,793
  27,557
  29,408
  31,350
  33,389
  35,529
  37,778
  40,140
  42,622
  45,230
  47,972
  50,854
  53,884
  57,071
  60,422
  63,946
  67,653
  71,551
  75,652
Discount rate, %
 
  7.80
  8.19
  8.60
  9.03
  9.48
  9.95
  10.45
  10.98
  11.52
  12.10
  12.71
  13.34
  14.01
  14.71
  15.44
  16.22
  17.03
  17.88
  18.77
  19.71
  20.70
  21.73
  22.82
  23.96
  25.16
  26.41
  27.73
  29.12
  30.58
  32.11
PV of cash for distribution, $m
 
  10,164
  10,286
  10,276
  10,142
  9,889
  9,525
  9,059
  8,505
  7,880
  7,199
  6,469
  5,739
  5,013
  4,307
  3,637
  3,016
  2,453
  1,956
  1,528
  1,167
  871
  634
  450
  311
  209
  136
  86
  53
  31
  18
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

The Home Depot, Inc. operates as a home improvement retailer. It operates The Home Depot stores that sell various building materials, home improvement products, and lawn and garden products, as well as provide installation, home maintenance, and professional service programs to do-it-yourself, do-it-for-me (DIFM), and professional customers. The company offers installation programs that include flooring, cabinets, countertops, water heaters, and sheds; and professional installation in various categories sold through its in-home sales programs, such as roofing, siding, windows, cabinet refacing, furnaces, and central air systems, as well as acts as a contractor to provide installation services to its DIFM customers through third-party installers. It primarily serves home owners; and renovators/remodelers, general contractors, repairmen, installers, small business owners, and tradesmen. The company also sells its products through online. As of December 31, 2015, it had 2,274 stores, including 1,977 in the United States, 182 in Canada, and 115 in Mexico. The Home Depot, Inc. was founded in 1978 and is based in Atlanta, Georgia.

FINANCIAL RATIOS  of  Home Depot (HD)

Valuation Ratios
P/E Ratio 22.3
Price to Sales 1.9
Price to Book 40.9
Price to Tangible Book
Price to Cash Flow 18.1
Price to Free Cash Flow 21.7
Growth Rates
Sales Growth Rate 6.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 7.9%
Cap. Spend. - 3 Yr. Gr. Rate 3.1%
Financial Strength
Quick Ratio 2
Current Ratio 0
LT Debt to Equity 515.8%
Total Debt to Equity 544.7%
Interest Coverage 15
Management Effectiveness
Return On Assets 20.1%
Ret/ On Assets - 3 Yr. Avg. 18.5%
Return On Total Capital 28.7%
Ret/ On T. Cap. - 3 Yr. Avg. 26.1%
Return On Equity 149.4%
Return On Equity - 3 Yr. Avg. 99.1%
Asset Turnover 2.2
Profitability Ratios
Gross Margin 34.2%
Gross Margin - 3 Yr. Avg. 34.2%
EBITDA Margin 16.3%
EBITDA Margin - 3 Yr. Avg. 15.6%
Operating Margin 14.2%
Oper. Margin - 3 Yr. Avg. 13.4%
Pre-Tax Margin 13.2%
Pre-Tax Margin - 3 Yr. Avg. 12.5%
Net Profit Margin 8.4%
Net Profit Margin - 3 Yr. Avg. 8%
Effective Tax Rate 36.3%
Eff/ Tax Rate - 3 Yr. Avg. 36.4%
Payout Ratio 42.8%

HD stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the HD stock intrinsic value calculation we used $94595 million for the last fiscal year's total revenue generated by Home Depot. The default revenue input number comes from 2017 income statement of Home Depot. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our HD stock valuation model: a) initial revenue growth rate of 6.9% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 7.8%, whose default value for HD is calculated based on our internal credit rating of Home Depot, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Home Depot.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of HD stock the variable cost ratio is equal to 72.8%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $12616 million in the base year in the intrinsic value calculation for HD stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 4.1% for Home Depot.

Corporate tax rate of 27% is the nominal tax rate for Home Depot. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the HD stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for HD are equal to 23.3%.

Life of production assets of 12.2 years is the average useful life of capital assets used in Home Depot operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for HD is equal to 2.4%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $4333 million for Home Depot - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 1214.89 million for Home Depot is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Home Depot at the current share price and the inputted number of shares is $179.2 billion.

RELATED COMPANIES Price Int.Val. Rating
LOW Lowe's 73.64 68.54  hold
SHOS Sears Hometown 2.00 2.98  buy

COMPANY NEWS

▶ Why Home Depots Net Margins Expanded in 2Q17   [09:08AM  Market Realist]
▶ What Drove Home Depots Same-Stores Sales Growth in 2Q17?   [Aug-17-17 06:06PM  Market Realist]
▶ Home Depot transforming store rooftops into 'mini solar farms' (Video)   [01:55PM  American City Business Journals]
▶ Home Depot transforming store rooftops into 'mini solar farms'   [11:15AM  American City Business Journals]
▶ Home Depot Could Retest Its July Lows   [10:56AM  TheStreet.com]
▶ US Market Indexes Gain on Wednesday   [10:53AM  GuruFocus.com]
▶ Trade of the Day: Home Depot Inc (HD)   [09:04AM  InvestorPlace]
▶ US Market Indexes Mostly Lower Tuesday   [11:06AM  GuruFocus.com]
▶ Home Depot: That's More Like It?   [10:34AM  Barrons.com]
▶ Federal Reserve rate hike probability declining?   [06:17AM  Fox Business Videos]
▶ Home Depot beats Street 2Q forecasts   [Aug-15-17 11:22PM  Associated Press]
▶ [$$] Are Retail Sales Dead? Depends Where You Look   [04:31PM  The Wall Street Journal]
▶ How to Trade Home Depot After Earnings Report   [03:48PM  Bloomberg Video]
▶ Indexes Quiet; Is This Tech Name Ready To Earn Its Stripes?   [03:08PM  Investor's Business Daily]
▶ Two "Amazon-Resistant" Retailers To Buy   [01:08PM  Barrons.com]
▶ [$$] Home Depot Lifts Guidance   [12:04PM  The Wall Street Journal]
▶ Home Depot beats Street 2Q forecasts   [11:09AM  Associated Press]
▶ Home Depot lifts outlook   [10:23AM  Reuters Videos]
▶ Home Depot: Buy or hold?   [Aug-14-17 03:53PM  CNBC Videos]
▶ Retail earnings on deck   [02:53PM  CNBC Videos]
Stock chart of HD Financial statements of HD
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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